I find lower firm risk in the year of a CEO divorce. This lower volatility is consistent with a reduction in risk incentives, as CEOs pay large divorce settlements and are less able to diversify firm-specific risk from their portfolios. Divorce has a larger impact on firms with cash-poor CEOs who lack diversification. Cash flow and accruals have lower volatility in the year of divorce, which is likely due to smoother discretionary expenses. The sensitivity of compensation to both price and volatility is significantly higher after divorce, suggesting compensation incentives adjust to portfolio incentives, with total compensation increasing by over $2 million on average. I find no evidence the results relate to increased distraction or alternative explanations.

We provide evidence that large termination fees mitigate contracting problems in acquisitions of targets with high information asymmetry. Large fees are more common if targets face financial constraints or distress. Deals with large termination fees are less likely to be consummated, consistent with large fees allowing acquirers to recover bidding costs when facing a high risk of bid failure. We correct for the endogenous selection of large termination fees and present evidence that managers negotiate large fees in exchange for higher premiums. This is in contrast with prior evidence that suggests large fees result from managerial self-interest and harm target shareholders.

We present evidence that earnout agreements in acquisition contracts provide a substantial source of financing for acquirers. Acquirers in transactions with earnouts are significantly more likely to be financially constrained, face tighter credit market conditions, and use less debt and equity to fund acquisitions. Financially constrained acquirers also book lower fair values for the contingent claim. Earnout use is more likely in transactions that involve liquid sellers, and earnout bids garner higher transaction valuation multiples. Overall, the evidence suggests that earnouts are an economically material and increasingly common source of acquisition financing for acquirers with limited access to external capital.

We examine the impact of shared auditors, defined as audit firms that provide audit services to a target and its acquirer firm prior to an acquisition, on transaction outcomes. We find shared auditors are observed in nearly a quarter of all public acquisitions and targets are more likely to receive a bid from a firm that has the same auditor. Moreover, these shared auditor deals are associated with significantly lower deal premiums, lower target event returns, higher bidder event returns, and higher deal completion rates. These results are driven by bids in which targets and acquirers share the same practice office of an audit firm and in which the target is small. Overall, our evidence suggests that bidders benefit from sharing an auditor with the target. Our results are robust to controls for alternative explanations and for selection bias in the shared-auditor effect.